FLEEING COMPANIES THE LEAST OF OUR PROBLEMS

News that a big employer is leaving San Diego or California always provides a reliable litmus test for politicians and the chattering classes. Some blame the high cost of doing business, while others blame greedy executives.

But we would all be much better off if they paid more attention to the would-be job creators left behind.

Several studies have shown that nearly as many companies and jobs move into California each year as leave it. A 2005 study by the Public Policy Institute of California found that from 1993 to 2002 — when the question of jobs leaving California figured prominently in gubernatorial campaigns — the net job losses from relocation were tiny; never higher than 0.1 percent of the state’s total jobs.

Little has changed in the years since, with minimal leakage of jobs in a given year as companies move into and out of California, according to Donald Walls, who assembles the data PPIC used for its study.

Politicians fixated on preventing companies from leaving the state are focusing on the wrong economic problem. “Only about 6 percent of (business) moves are in or out of the state,” he said Tuesday. “Most of the moves are within the state.”

So I shed few tears last week when the U-T reported that American Specialty Health was moving its headquarters from San Diego to Indiana next year, lured in part by $11.5 million in tax credits.

I worry more about the new companies that stay but are strangled in their cradles, along with the unborn startups that never get a chance to create jobs.

California, where unemployment lingers well above the national average, arguably inflicts the nation’s greatest regulatory cost burden on its businesses.

Just last year, 102 agencies and departments imposed 467 new regulations in California, according to the National Federation of Independent Businesses.

Although all these regulations create jobs for lawyers and government workers, the Legislature requires no evidence that the rules will protect people or justify their costs.

The burden is heaviest for new businesses, which typically have the fewest human or financial resources to navigate this daunting maze.

In 1988, when my partner and I started our first business in Ohio, government regulation was the furthest hurdle from our minds, which were consumed with raising capital, finding customers and managing the business costs we knew about.

We were young, naive and more than a little arrogant. I’d mastered every aspect of my manufacturing niche, from janitor to machinist to engineer. It seemed stupid to let my vast talents enrich somebody else.

So we rented space and starting running machines, just the two of us, from 12 to 18 hours a day, seven days a week.

A month or two later, before we had hired our first employee, a city inspector walked into our shop and demanded to see our business license.

I was genuinely shocked. We were contract machinists for industrial firms. We weren’t a liquor store or something, open to the public. Why on earth would we need a license?

The answer, of course, was a variation on the ancient scourge of oppressed children everywhere: “Because I said so.”

The inspector took pity on me, gently explaining all the laws I had broken, and how I could correct my shortcomings right away down at City Hall. And bring your checkbook.

Spelunking bureaucracy was beyond my core competence, so we hired an accounting student to work afternoons.

To justify the expense, we taught him cost accounting and cash flow management. But his secondary job was to make sure we never missed a government requirement again. For fun, I asked him to keep a running tally.

A year later he announced the grand total: To open a business required contact with 30 separate forms, government agencies and/or fees. Figuring out which ones applied to us required the intelligence and determination of Sherlock Holmes.

Today, 25 years later, I couldn’t find an expert who could tell me what the equivalent number is in California. The state has helpfully provided a website,
calgold.ca.gov, but it leads to secondary links and doesn’t pretend to be comprehensive.

And some of the state’s requirements would be funny it they weren’t so depressing.

For example, the California Division of Occupational Safety and Health requires all employers, big and small, to write a safety manual. One free example on the Web provided by Berkshire Hathaway’s insurance subsidiaries is 103 pages long.

I’m a big believer in safety, along with the spirit of the myriad laws governing wages, environmental protection and other public priorities. Yet I’m certain that the millions of pages of regulations that governed my operation did very little to advance those priorities.

Besides that first city inspector, the only government official who visited our factory was the fire inspector, who came regularly to make sure we weren’t blocking exits or storing explosive chemicals next to the welding torch.

This told me that my government cared deeply about fire protection. But I never saw anybody from occupational safety, or environmental protection, or even the Internal Revenue Service.

The dirty secret is that new regulations are rarely necessary, so government delegates enforcement to plaintiff’s attorneys who generally target big companies.

When this voluntary system works, it’s because most business owners believe it is in their interest to keep workers and customers safe, physically or financially.

Starting a business is hard enough in famously high-cost California, without the government changing 467 rules a year.